Global co's offer spurred Zee into stake-sale mode

Zee Entertainment, in which promoters announced plans to sell up to half of their 42% holding, has asked advisers Goldman Sachs and LionTree to open up the process to only select suitorsBoby Kurian | TNN | November 19, 2018, 11:01 IST

Subhash Chandra-promoted Zee Entertainment Enterprises (ZEEL) decided to run a share-sale process after a global media giant made an offer to buy into India’s leading satellite broadcaster, Chandra’s son and ZEEL’s chief executive and managing director Punit Goenka has told TOI.

Zee Entertainment, in which promoters last week announced plans to sell up to half of their 42% holding, has asked advisers Goldman Sachs and LionTree to open up the process to only select suitors, Goenka added. He said the promoter family had no plans to exit the business, although several investment bankers believe the promoters might agree to ceding control, if not outright sale, at the right price.

“We were approached by a global media company to buy into Zee Entertainment recently. The promoters then decided to open up the sale process since we would do it only once in a lifetime, and didn’t want to get it wrong,” Goenka said during a free-wheeling chat. He said Zee had run a process to induct a strategic or financial partner in Zee5, its over-the-top (OTT) platform, but the potential investors sought covenants with the parent that owns the content.

“Instead of signing covenants or giving rights to bring a partner in the subsidiary, we thought it more efficient to do it in the main company,” Goenka said, while adding that Zee5 was approaching 50 million unique users and looking to become an OTT leader in the near future. Star India’s Hotstar has over 100 million users currently.

In previous reports, TOI has named Comcast, Reliance Industries, Charter Communications, Sony, Alibaba, Google and Apple as potential suitors. Goenka said the promoters would give greater weightage to the nature of strategic partnership than value-maximisation in the share-sale process. A foreign buyer, though allowed to own 100% in entertainment media companies, would want a local partner and management team to run operations in a complex, multi-lingual market, he indicated.

The Zee Entertainment chief wouldn’t be drawn into discussions about valuation. Goenka, however, said a deal was unlikely at the current share price, which pegged the company’s valuation at around Rs 42,000 crore, or $5.8 billion. The Mumbai-headquartered company is tracking an EBITDA, or operating profit, of about $350 million this fiscal. As reported by TOI earlier, the current deal frenzy in a consolidating global media industry — driven by the convergence of content and telecom — has pushed valuation to 20 to 25 times EBITDA. This could peg ZEEL’s valuation at anywhere between $8 billion and $9 billion.

In July this year, Disney acquired a swathe of Rupert Murdoch-led 20th Century Fox’s businesses, including Indian assets, for a stunning $71 billion. Analysts believe Murdoch’s Star India operations could have accounted for up to $15 billion of the overall valuation. If a Comcast or another global telecom-cum-content giant were to buy into Zee, it would reset the Indian media convergence narrative, even for Reliance Jio.

Goenka said Zee has no ambitions in telecom, and wouldn’t pursue a merger from that perspective. “We understand that that ship has sailed long ago,” he said, even though last year the group was approached with some fleeting offers in a sector that’s been bleeding profusely. “We want to remain a content company with enough technology and distribution clout to be a global player,” Goenka said.

He said that a section of the market was reading too much into the group’s debt hangover — estimated at over Rs 11,000 crore — and the fact that around 59% of the promoter holding in Zee Entertainment was pledged to lenders. “We have already sold our transmission business. In the next one quarter, we’ll be divesting solar and roads portfolio, which will fetch us about Rs 8,000 crore conservatively,” he said.